Why you should care

Because the next generation is moving into the investment world, and this is how they’re learning about it — for better or for worse.

By Ryan Derousseau

The Daily DoseJAN 26 2015

At the Society of Grownups, which pitches itself “as a sort of master’s program for adulthood,” supper clubs may include hearth-baked chicken, creamy mashed potatoes and Brussels sprouts — but always with a side of financial advice. While some youthful patrons dig in to a meal accompanied by a sommelier who teaches them about the long-term investing value of a bottle of Bordeaux, Melissa Pocek, a Boston-based writer, recently attended a class to help her plan better financially as she transitioned into a full-time freelancer. Following a roundtable discussion with a successful freelancer and eight other guests, and a $40 bill, Pocek began budgeting life goals like buying a house and investing in retirement property.

“My background isn’t in finance — it’s in journalism,” says Pocek. “I figured it would be a good time to start learning.”

[Microinvesting] services can be a nice stepping stone to help people get more comfortable with investing.

— Grant Easterbrook, ananlyst for Corporate Insight

It may be hard to believe, but investment education is getting a little less, well, stuffy these days. In recent years, some businesses have rolled out online tools (or 3-D goggles) to help people with investing, while major financial firms that had all but ignored young professionals now recognize just how much money some folks have to play with. The Society of Grownups, for one, launched in October and is a service provided by none other than MassMutual, a major life insurance company.

The interest in millennials and other young guns means companies are trying to foster relationships early, so they’re pitching sexier services. They’re also riding a wave of renewed confidence about the stock market, where the Standard & Poor’s 500 index — a mix of the largest companies in the U.S. — has soared some 80 percent since 2009.

Supper clubs are part of the offerings, but another tactic includes gaming. The brokerage house Fidelity, for example, is developing an Oculus Rift investing tool that requires 3-D glasses and not only looks like you could be trading in the world of Tron, but also encourages you to keep learning because it’s entertaining. In fact, it transforms an investor’s portfolio into a city, with each building representing a particular stock. By making the process fun, or at least not unbearable, the tool will help more people learn about and get into trading — or so the thinking goes.

Meanwhile, a new startup called Stockpile is trying to make it easier to get into the rhythm of investing. It connects to your bank account so that every time you buy something with your credit or debit card — like a Starbucks coffee — the app rounds up the purchase to the nearest dollar and moves that change over into your Stockpile account. At the month’s end, this so-called microinvesting strategy will have accumulated enough loose change to buy a share of a stock or an index fund that you can gift to someone or keep in a portfolio. (Stockpile takes a fee on gift cards of stock.)

“Many people find investing in the stock market intimidating,” says Grant Easterbrook, who analyzes financial technology startups for consulting firm Corporate Insight. “These [microinvesting] services can be a nice stepping stone to help people get more comfortable with investing.”

But, experts warn, these tools could go wrong if their companies start offering products that are in the best interest for themselves and not the investor. MassMutual employs advisers who recommend insurance offerings to their clients, though the Society of Grownups’ advisers — who earn a salary for providing financial planning tips — don’t sell any individual investing tools or products, ensuring that experts aren’t making money based on what someone does with their advice, says Nondini Naqui, the society’s director.

While proponents say this new wave of services offers a way to teach the basics of investing with little risk, there’s a concern among many on Wall Street that a stock market correction is due, possibly this year. Indeed, some caution that these tools can turn an educational opportunity into a dangerous game when young investors see more wins and assume they’re inherently responsible for those gains. (Somestudiesshow that people have little chance of outperforming the stock market over the long term, especially when picking individual companies.) “There’s a lot of randomness and luck in trading,” says Meir Statman, a professor of behavioral finance at Santa Clara University.

Statman should know. At the university, where he uses old-fashioned (not computer-simulated)games to teach college kids about investing, some students get lost in the rush of winning, the prof says. “Then they try with real money and, more often than not, end up behind,” adds Statman, who is also an adviser for Wealthfront, an investment services company that manages people’s money online.

It’s the kind of trap Brandon Fleisher, a high school senior from Toronto, thinks that he and other investors his age can avoid.After attending an after-school investment club, Fleisher launched an information site last year called The Financial Bulls with a team of co-founders to provide investing tips to financially green classmates and peers. (He has real money on the line, but says his bets on stocks like Netflix and Tesla Motors more than doubled soon after he invested in them.)While Fleischer says he has yet to experience a downturn, as with most of these new personal-finance sites and services, it will be interesting to see who succeeds and ultimately survives, should the market fall.